HOW MUCH HOME CAN YOU AFFORD?

Ensure you still have a rainy day fund before sinking all your savings into a home

Be certain you are ready to stay in one place for several years before tying up money in a somewhat illiquid asset

Calculate a reasonable percentage of your income

Aim for between 25 and 30 percent of take-home pay on housing (this means your net pay, not your gross income). This includes any extra monthly income you might earn from freelancing, side jobs or investments. This should not include savings or retirement accounts.

Assess your current debt payments

Are you paying on student loans? How much are your car payments? What about your monthly credit card payments? Do you have any other mortgages? What other debts do you have? This is a short list of the expenses you should add up. That DTI ratio will also include the mortgage and associated expenses you are applying for, so include that as well.

Figure out how much your down payment will be

The recommended amount for a down payment is 20 percent of the total cost of the house. Whatever the amount of the down payment, calculating it will let you know how much you’ll need to borrow.

Find out your interest rate

A combination of your credit score, your DTI ratio and your down payment amount will all figure into the interest rate on your mortgage. Adjustable-rate mortgages tend to start out with lower initial interest rates but can flex with time, tracked by indices such as the Federal Reserve Board. Fixed-rate mortgages might start out a little higher but remain fixed throughout the life of the loan. The length of your mortgage can also impact your interest rates.